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Electric car drivers 'should pay 6p-per-mile road tax'

Electric car being charged - John Walton/PA Wire
Electric car being charged - John Walton/PA Wire

A 6p-per-mile road tax on electric cars should be introduced to avoid a “massive black hole” in tax revenues, ministers have been urged.

The Resolution Foundation has warned the Treasury it will face a £10bn shortfall by the early 2030s unless it introduces new taxes on electric vehicles.

The think tank has said a proposed road tax, which would be measured through GPS data, would also allow the Government to charge motorists more for driving in congested areas in order to reduce traffic.

The proposals come as the Government faces a budget shortfall from the loss of fuel duty, which makes up over 2pc of total tax take.

Electric vehicles (EVs) are not currently charged a fuel duty on the electricity used to recharge them. Drivers of electric cars will have to start paying vehicle excise duty from 2025, bringing them in line with petrol and diesel vehicles.

However, fuel duty makes up the bulk of revenue the Treasury collects from drivers.

The think tank has proposed a new “pay-as-you-drive” tax on EVs to help make up for the lost revenue and balance the books.

Jonny Marshall, one of the authors behind the report, said: “What we’re proposing is a system to basically reform how driving is taxed so that everyone starts paying again.

“At the moment, the people who are not paying this tax are people who have the funds to buy an electric vehicle. That means that not only is this sort of tax base declining, but it’s declining by better-off people opting out.”

The Resolution Foundation suggested measuring the tax through GPS systems within cars, which would allow drivers to be billed monthly.

It would also allow officials to impose local congestion charges to help cut down on traffic, it said.

The report called for road taxes to be introduced only for EVs, with existing taxes on petrol and diesel cars remaining in place.

However, automotive industry leaders warned that road pricing for EVs only would deter the shift towards battery-driven cars.

Steve Gooding, the director of the RAC Foundation, said fluctuating electricity prices were already prompting some consumers to switch back to petrol and diesel. Higher operating costs could dent demand further.

Mr Gooding said: “The fact is there’s a green urgency to get those cars onto our roads in increasing numbers, and that means encouraging the people who are in the market for buying new.”

The suggestion that taxes will be levied based on Government collection of data on individual drivers is also likely to raise concern among privacy advocates.

A push to address the looming budget deficit comes ahead of a ban on the sale of new combustion engine cars from 2030.

Electric vehicles accounted for 14pc of new vehicles bought last year, with more than a million now on the road.

Demand is predicted to rise rapidly, with one in seven drivers now saying their next purchase will be an electric model compared to only one in 30 five years ago.

The Transport Select Committee warned in a recent report that the Government faced a budget blackhole without fundamental reform and urged Downing Street to consider road pricing.

However, many of the witnesses giving evidence to the committee flagged concerns around data privacy and stressed that it would require a strong legal framework.

Conservative MP Iain Stewart, who chairs the select committee, said: “Already there is some data held about where we drive, but this will be a massive step forward, a massive expansion of that information.

“There would have to be very careful controls over how that data was collected, who had access to it and the wider privacy concerns. That has to be part of the debate.”

A Treasury spokesperson said that the Government has “no plans to introduce road pricing”.